Page 227 - How to Make Money in Stocks Trilogy

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• C HAP T E R •

How to Read Charts

Like a Pro and Improve

Your Selection and Timing

In the world of medicine, X-rays, MRIs, and brain scans are “pictures” that doctors
study to help them diagnose what’s going on in the human body. EKGs and
ultrasound waves are recorded on paper or shown on TV-like monitors to
illustrate what’s happening to the human heart.
Similarly, maps are plotted and set to scale to help people understand
exactly where they are and how to get to where they want to go. And seismic
data are traced on charts to help geologists study which structures or pat-
terns seem most likely to contain oil.
In almost every field, there are tools available to help people evaluate
current conditions correctly and receive accurate information. The same is
true in investing. Economic indicators are plotted on graphs to assist in their
interpretation. A stock’s price and volume history are recorded on charts to
help investors determine whether the stock is strong, healthy, and under
accumulation or whether it’s weak and behaving abnormally.
Would you allow a doctor to open you up and perform heart surgery if he
had not utilized the critical necessary tools? Of course not. That would be
just plain irresponsible. However, many investors do exactly that when they
buy and sell stocks without first consulting stock charts. Just as doctors
would be irresponsible not to use X-rays, CAT scans, and EKGs on their
patients, investors are just plain foolish if they don’t learn to interpret the
price and volume patterns found on stock charts. If nothing else, charts can
tell you when a stock is not acting right and should be sold.
Individual investors can lose a lot of money if they don’t know how to rec-
ognize when a stock tops and starts into a significant correction or if they
have been depending on someone else who also doesn’t know this.

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